Management Accounting and Costing Techniques

This assignment delves into the world of management accounting, examining diverse costing methods and budgeting techniques. It explores concepts such as marginal costing, absorption costing, zero-based budgeting, activity-based costing, and performance-based budgeting. Students are expected to demonstrate their understanding of these principles and their applications in real-world business scenarios.

MANAGEMENT ACCOUNTING

Contents
management Accounting.................................................................................................................1
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
P1 Management accounting and requirement of different management accounting system......3
P2 Different methods used for management accounting reporting.............................................5
Task 2...............................................................................................................................................6
P3 Calculating the costs under absorption & marginal costs and examining the difference.......6
Task 3...............................................................................................................................................8
P4 Explaining advantages & drawbacks of the budgetary planning techniques.........................8
A. Computation of standards cost of PVC sheets........................................................................9
B. Calculation of material price and quantity variance.............................................................10
Task 4.............................................................................................................................................11
P5 Effectiveness of management accounting system in resolving financial problems.............11
Conclusion.....................................................................................................................................12
References......................................................................................................................................13
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INTRODUCTION
Management accounting is the technique that is used by the companies in order to record
their financial data so that management can develop strategies for the growth of the entities.
Therefore it plays significant role in the companies and helps the firms in making sound business
decisions (Scapens and Bromwich 2010). For the present report Dell Company is being taken
into account. Assignment will discuss the requirement of different types of management
accounting system in an organization. Several methods which are required by the entity to
accounting reporting will be explained in this study. Absorption cost and marginal cost will be
calculated in this report in order to prepare income statement (Yalcin, 2012). Advantage and
disadvantage of different types of planning tools will be described in this study and material
price and quantity variance will be computed.
TASK 1
P1 Management accounting and requirement of different management accounting system
Management accounting can be considered as process that helps in preparing the
accounting reports and used economic information’s in such manner so that entity can
make sound decisions which can help in the growth of the organization to great extent
(Tucker and Parker, 2014). This is tool through which managers of the company can carry
out business operations well and can contribute in accomplishing the short term goal of the
organization. The main objective of Dell of using management accounting is to identify the
risk and allocate resources well so that issues related to shortage of funds and others can be
minimized soon. Management accountant of Dell company gather information time to time
so that they can monitor current operations and can measure the effectiveness of the
existing process (Ambe,2016).
Type of management accounting system and its essential for the Dell Company
There are several types of management accounting system used by the entity (Clark,
Menifield and Stewart, 2017). These are described as below:
Traditional cost accounting: It is traditionally used method in which managers allocate cost to
the production so that goods can be manufactured. It includes costing of process, job order
and batch costing. Direct and indirect cost expenditures are included in the production
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process so both these expenditures are considered in this cost accounting process (Hülle,
Kaspar and Möller, 2011).
Lean accounting: It is another type of management accounting tool which can be beneficial for
the Dell Company. It is the method through which cited firm make effective control over
its cost and can remove wastage from the system significantly. It is used by most of the
entities in order to gather relevant information so that they can make sound decisions for
the growth of the firms (Ball, Grubnic and Birchall, 2014 ). Lean accounting is the type
of method which is used by manufacturing firms mostly because by this way they try to
eliminate the wastage and increase efficiency level of the production. By this way
companies like Dell can understand its overall financial worthiness. If cited firm uses this
tool then it can be safe from future uncertainties and can enhance its profitability to great
exten (Clark, Menifield and Stewart, 2017)t.
Throughput accounting system: It is completely differed from the traditional management
accounting system. It concentrates more on the constrains which are exist under the
production system due to this its performance is not good. With the help of this system
Dell can minimize the issues related to material or labor and can improve production
capacity (Banerjee and Das, 2017). Throughput accounting system is the method which
focuses more on minimizing the per unit cost of produced goods so that overall profit of
the organization can get improved. Its main focus in on sales so management of Dell uses
this system and concentrates more on producing quality products so that sales volume of
the cited firm can get improved (Clark, Menifield and Stewart, 2017).
Transfer pricing accounting system: If entities are engaged in the import and export business
then it is necessary for them to follow legal guidance and they have to pay tax
accordingly (Bhimani and et.al, 2013). For example if Dell is US bases firm and it
imports some equipments from France then it will have to follow this management
accounting system and have to pay tax as per the norms of particular nation. It is applied
when business is run between two different countries (Clark, Menifield and Stewart,
2017).
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P2 Different methods used for management accounting reporting
Dell being a manufacturing firm has to follow the guidelines of the international
accounting norms and Dell can adopt any method for the growth of the cited firm
(Gullifer and Payne, 2015). Several methods are described as below:
Job cost reporting
It is considered as one of the important tool that helps in maintaining the organizational
job costing related details. In this section many information can be used such as period
sensitive accounts balance data, reviewing job information etc (Romano, 2015). It is
divided into subsections and information related to labor etc. is being used by the
management. By this way cited firm can generate good information for the well fare of
the entity. By this way Dell can compare the estimated cost with the actual. It is
beneficial tool that supports in tracking the cost and evaluating the job well (Clark,
Menifield and Stewart, 2017).
Sales reports
It is another method for management accounting reporting in which managers of Dell can
record sales information in specific time duration. It gives detail about the per item sales
volume so that company can estimate the profitable products and can reduce wastage.
Sales reports are evaluated by the higher authorities so that they can know about cost
attached with it and can minimize unnecessary expenditures soon (Hülle, Kaspar and
Möller, 2011). If there is big gap between estimated sales figures and capture volume
then company can take measures to enhance the sale performance. It will help in reducing
gap between estimated profit and actual revenue. After analyzing the sales report
managers of cited firm can identify threats and opportunities to the business. By this way
sales volume can be increased to great extent. This record shows that if sales is declining
continuously that shows Dell in not able to provide products as per the needs of clients,
so it is required to improve quality of the items (Romano, 2015). Declining sales shows
that firm are require to sell the existing products and it is required to modify it as per the
needs of consumers. By this way Dell will be able to achieve its sales goal and will be
able to sustain in the corporate market for longer duration. This management accounting
reports can give high profit to the firm in near future (Ball, Grubnic and Birchall, 2014 ).
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Cost accounting
It is the type of management accounting system in which firms collect, record information,
summarizes them in such manner so that it can make effective control over its cost. It is
beneficial tool that can support in capturing the production cost of the entity, fixed and
variable expenses. That can be advantage for the Dell because by this way cited firm will
be able to make comparison between input cost and output (Scapens and Bromwich 2010).
For example RL Maynard is using the cost accounting system , that helps in determining
the unit cost. By this way organization measures overall growth of the corporation.
Budgetary report
It is the type of the reporting tool in which performance of actual and estimated budget is
compared by the management. Dell uses this method in order to compare its budget
performance and show these details in its income statements (Romano, 2015). Variance
can be analyzed through this system and cited firm can make strategies in order to get
favorable results. It is beneficial tool that indicates the firms how much amount is
required to invest for further development (Clark, Menifield and Stewart, 2017).
TASK 2
P3 Calculating the costs under absorption & marginal costs and examining the difference
Absorption costing is a marginal costing technique which apportion all the fluctuating
and fixed variable production overheads to the goods(Surbhi, 2015).
Description of the item Amount
Material used (20 each unit) 1000000
Wages of the labor (8 per unit) 400000
Variable costs or overheads(4 per unit) 200000
Fixed overheads (10 per unit) 500000
Production costs 2100000
Add: Beginning stock items Nil
Less: Ending stock (2,100,000/50,000*10,000) 420000
Cost of sale 1680000
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Description of the activities Amount
Sales income (40000@67.50) 2700000
Less: cost of sale(see above) 1680000
GP (Gross profit) 1020000
Fixed admin & selling expense 600,000
Variable admin & selling expense 240000
NP (Net profit) 180,000
Marginal costing is a technique or cost accounting system which apportion only those
costs which changes in the same direction of change in the production output(DelicadoTeixeira,
and Daniel, 2016).
Description of the activities Amount
Material used (20 per unit) 1000000
wages of the labours (8 per unit) 400000
Variable cost of production (4 per unit) 200000
Production cost 1600000
Add: Opening stock 0
Less: Ending inventory (1600,000/50,000*10,000) 320000
Cost of goods sale 1280000
Description of the activities Amount
Sales income (40,000*67.50) 2700000
Less: COGS (see in the previous table) 1280000
GP (Gross profit) 1420000
Variable admin & selling expense 240000
Contribution 1180000
Fixed admin & selling expenses 600,000
Fixed cost of production 500000
NP (Net profitability) 80,000
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Findings and analysis: Under marginal cost, unit cost is 32 whereas in full costing
method, it is 42. The difference caused because absorption costing method apportioned fixed
costs of 10 per unit also to the cost measurement. Due to these differences in the cost treatment,
cost of production & COGS also quantified differences, as in full costing, these are measured at
2,100,000 and 1,680,000 whilst under variable costing, the data has been reported less to
1,600,000 & 1,280,000 respectively, as a result, gross profit under full & variable costing
reported different results to 1,020,000 & 1,420,000 (Clark, Menifield and Stewart, 2017).
Besides this, marginal costing method measured a contribution of 1,180,000 GBP. Further, in
order to find out the net profit, marginal costing method subtracts all the fixed expenses whereas
absorption costing method subtracts other expenses either fixed or variable which are not the part
of operations. Due to this reason, both method computed net profit differently at 180,000 &
80,000.
TASK 3
P4 Explaining advantages & drawbacks of the budgetary planning techniques
Budgeting can be defined as a process wherein managers express their plan into monetary
terms which aims at fulfilling long-term goals of the enterprise (Clark, Menifield and Stewart,
2017). It is a plan which is designed for the desired future outcome and finding out the effective
ways of bringing success. It is a plan that express the possible results or outcome of the future
activities and functions and helps in coordinating the business functionality of all the divisions.
Dell Corporation’s managers construct budget to aid in business planning, performance
evaluation, coordination, motivation and implement control over the organizational functions.
Budgeting methods:
Incremental budgeting: It is the oldest technique that Dell’s managerial team can use as
a traditional budgeting. Under this method, budget is created in five stages, first defining the
broad activities, finding out their essential & lastly, quantifying their prospective outcome. This
method does not question the past year’s budget and targeted at managing sufficient cash so as to
sustain it at previous level and adding more expense for the new items (Clark, Menifield and
Stewart, 2017).
Advantage:
 It is easy to understand and facilitates inexperienced managers to operate it.
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 It helps in making the statistical comparison over the period easily, because, past year’s
budgeted items are still not questioned in the current year.
Drawbacks:
 It uses last year budget and does not question the existing period’s budget validity.
 Being a budgetee, Dell is not required to justify the elements and only the new items that
has been added into PY’s budget must be justified (de Campos and Rodrigues, 2016).
 It ignores the total production volume or activity and also does not considers the input-
output relationship.
Zero-based budgeting:
In case where company’s costs is excessively discretionary then in such situation, zero
based budgeting is founded really suitable. This technique requires for the departmental
managers to carry out an investigation to analyse the external market environment and thereby
make the projection about possible future course of activities (Sehgal, 2017).
Advantages:
 It is really a better way & suitable approach of allocating resources. It is because, the
method question each and every item of the budget & aims at eliminating unnecessary
operations that will contribute to success.
 It provides a base to the management for achieving measurements, which in turn, leads to
staff involvement (Kaplan and Anderson, 2013).
Drawbacks:
 It needs excessive paperwork & too-much time consuming.
 Every item of the budget needs to be justified with the enough amount of evidences.
A. Computation of standards cost of PVC sheets
Standard costing is the practice that is applied in the establishment to substitute an
expected or possible cost for the actual expenditures & also record the variances or deviations
showing the differences in actual & targeted results.
Standard costs of PVC sheets for manufacturing 4000 keyboards
= Standard quantity * standard price per sheet
Standard quantity = quantity per unit * 4000 key boards
= 2.5 feet * 4,000
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= 10,000 feet
Standard price per sheet = 3.60
SC = 10,000*3.60
= 36,000 GBP
Actual costs = 37,400
Difference = SC – AC
= 36,000-37,400
= 1400
Looking to the derived results, it seems clear that firm has incurred greater amount of
expenditures by 1,400 GBP compare to expected.
B. Calculation of material price and quantity variance
Material price variance, as its name, measures the difference in costs due to different
target and actual price of material (Kaplan and Anderson, 2013). However, material quantity
variance quantifies the changes in costs because of differences between targeted and actual
quantity of PVC sheets that Dell consumed for manufacturing 4000 keyboards
MPV = Actual quantity (SP – AP)
= 10,000 feet(3.6-3.4)
= 2000 favourable
MQV = Actual price (SQ – AQ)
= 3.40 (10,000 – 11,000)
= 3400 A
MCV = MPV + MQV
= 2000 + (-3400)
= 1400 (A)
Results suggests Dell’s production department manager to keep their eye on the material
use to implement right control for ensuring its effective use.
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TASK 4
P5 Effectiveness of management accounting system in resolving financial problems
Management accounting is the tool that is used by the entities in order to track the cots so
that they can make control over wastage and can enhance revenues (Banerjee and Das,
2017).
Throughput accounting system: It is the type of system which is used by the Dell in order to
measure the performance. It is the method which concentrates on the cash element that
means it pays attention on cash generated by the firm over a period of time. This model is
very effective because by this way economic issues can be identified and firm can make
suitable strategies to reduce these problems (Tucker and Parker, 2014).
Lean accounting: It is another type of system in which overall manufacturing environment is
managed by the Dell well so that it can achieve its target. In this more focus on managers
are on the direct and indirect cost. These costs can enhance the operational cost of the
cited firm so management try to minimize these expenditures. It is the simple tool and
works to increase productivity of the organization (Banerjee and Das, 2017). It is
beneficial tool that supports in managing the manufacturing process well so that it can
make effective control over production inventory and can gain good profit.
Transfer pricing: It is the type of accounting system in which firms transact with other firms. It is
time consuming process and it enhances cost of the corporation because for that extra
labor is required by the entity in order to run its business well. Though it is kind of
expensive tool but by this way entities can provide raw material to its subsidiary firm on
time (Ball, Grubnic and Birchall, 2014 ). HP is using is method and running is business
well. It increases sales volume of the firm and company became able to make effective
strategies which can increase its profitability.
Traditional accounting system: It is the effective through which entities can produce more goods
and can satisfy the needs of consumers. It takes into consideration to various factors such
as costing, budgets, cash flow etc. It is beneficial tool that supports in the improvement of
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reporting system and helps in increasing the volume to great extent (Scapens and
Bromwich 2010).
CONCLUSION
From the above report it can be concluded that Management accounting is the effective
tool by this way managers can gather essential information and can make sound business
decisions. For making the judgments firms have to look upon the several costs and have to make
strategies so that they can make effective control over unnecessary expenditures. It helps in
increasing overall revenues and performance of the entity to great extent. From the study it is
found that absorption costing is far better than marginal, it helps in calculating the net profit.
With the help of management accounting Dell and resolve its economic problems and can run its
business well. It will help in sustaining in the market for longer duration.
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REFERENCES
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de Campos, C.M.P. and Rodrigues, L.L., 2016. Budgeting Techniques: Incremental Based,
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Sehgal, J.K., 2017. Zero-Based Budgeting. PARIPEX-Indian Journal of Research.5(10).
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